Yes, you can put up to 2 TB in a modded Xbox. If you do a HDD upgrade, go ahead and swap the 40 wire ribbon cable for an 80 wire. You'll see a significant decrease in load times.
Also, couldn't find much info on it previously, so I just went for it: 1TB SSD confirmed working.
Had it in for over a month now. Works great, and surprisingly further decreases load times (would have thought the PATA cable would bottleneck any speed gain by SSD).
Sure man; sky's the limit. Good thermal paste is way better than the stock crap they put in there by default. Should see it run a few degrees cooler. I've swapped out the fan for a smaller one, but if your goal is temperature, you probably want to go bigger (more airflow).